Econs - 3.1

Question 1

money - definition

Answer 1

any commodity that can be used as a medium of exchange for the purchase of goods / services

Question 2

forms of money

Answer 2

1. cash
2. bank deposits
3. central bank reserves

Question 3

cash - forms of money

Answer 3

• physical form (bank notes)
• can be convenient but only for small transactions

Question 4

bank deposits - forms of money

Answer 4

• money reserves placed in commercial bank accounts
• instead of carrying large amounts of money, can withdraw from bank / use a credit card

Question 5

central bank reserves - forms of money

Answer 5

• deposits that commercial banks hold at central banks
• ensures financial stability and facilitates banking operations

Question 6

functions of money

Answer 6

1. medium of exchange
2. measure of value
3. store of value
4. standard of deferred payment

Question 7

medium of exchange - function

Answer 7

• widely accepted and recognised as a means of payment for goods / services
• replaces barter trade

Question 8

measure of value

Answer 8

• measures the market value of different goods / services (for comparing)

Question 9

store of value - functions

Answer 9

• to store and use over time / in the future
• must be able to hold its purchasing power over time

Question 10

standard of deferred payment - functions

Answer 10

• allows people to buy goods and services now and pay for them later
• eg. loans, credit

Question 11

characteristics of money

Answer 11

1. durability
2. acceptability
3. divisibility
4. uniformity
5. scarcity
6. portability

Question 12

durability - characteristics

Answer 12

• long lasting

Question 13

acceptability - characteristics

Answer 13

• widely recognised and accepted as a medium of payment for goods and services

Question 14

divisibility - characteristics

Answer 14

• allows exact payment
• makes trade easier

Question 15

uniformity - characteristics

Answer 15

• easily recognisable
• looks identical

Question 16

scarcity - characteristics

Answer 16

• limited in supply to keep value

Question 17

portability - characteristics

Answer 17

• light and small for convenience
• encourages trades

Question 18

bartering - definition

Answer 18

the act of swapping items in exchange for other items through a process of bargaining and negotiations due to the absence of money in the economy

Question 19

central bank - definition

Answer 19

is the monetary authority that oversees and manages the economy’s money supply and banking system in a country

Question 20

functions of a central bank

Answer 20

1. sole issuer of banknotes and coins
2. the governments bank
3. the bankers bank
4. the lender of last resort

Question 21

sole issuer of banknotes and coins - functions

Answer 21

• central bank can print official
• prevents fake money
• control money supply to avoid inflation

Question 22

governments bank - functions

Answer 22

• manages government accounts
• handles national debt
• helps government borrow / lend money
• controls monetary policy

Question 23

bankers bank - functions

Answer 23

• provides loans to commercial banks
• ensures the banking systems runs smoothly
• holds reserves for commercial banks to maintain stability

Question 24

lender of last resort - functions

Answer 24

• central bank can give emergency funding for struggling commercial banks
• prevents bank failures
• protects economy from financial crisis

Question 25

commercial bank - definition

Answer 25

retail bank that provides financial services to its customer (eg. savings, bank loans & mortgages)

Question 26

functions of commercial banks - primary

Answer 26

1. accepting deposits 2. making advances 3. credit creation

Question 27

accepting deposits - functions, primary

Answer 27

- people and businesses to store money in the bank - helps protect money - allows customers to earn interest

Question 28

making advances (loans) - functions, primary

Answer 28

- bank lends money to business and individuals - eg. loans, mortgages, credit cards

Question 29

credit creations - functions, primary

Answer 29

- reserves some deposited money - increases the total money supply in the economy

Question 30

functions of commercial banks - secondary

Answer 30

- collecting and clearing cheques - offering additional financial service - providing safety deposit boxes - facilitates money transferring - offers credit card services - offers internet banking services